"Why recover service charges from consumers as additional and separate levy?": Delhi High Court asks Restaurants

The Delhi High Court on Tuesday questioned the restaurants as to why should they recover service charges from consumers as additional and separate levies.

The Court was hearing an appeal filed by the Central Consumer Protection Authority (CCPA) challenging the High Court’s order staying guidelines which restrained restaurants from levying service charges automatically on food bills. The single-judge bench, while passing the interim order, directed that the information that the restaurant levies service charge must be displayed prominently for the knowledge of the customers. The bench, further, remarked that the customers have a choice to not go to a restaurant if they do not wish to pay the service charge.

A division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed that a common man perceives service charge as a government levy, and suggested that restaurants can raise their food prices to absorb this charge rather than recovering it as an additional charge on top of the total bill. 

Accordingly, listed the matter for further hearing on August 18.

Additional Solicitor General (ASG) Chetan Sharma, appearing for the CCPA stated that the service charge is in the nature of a tip, consumers are given the impression that it is a governmental levy or tax.

ASG Sharma added that the consumers face embarrassment when they don't pay or they are asked to pay and that is the reason hundreds of complaints have been received.

On Contrary, the counsel appearing for one of the Restaurants submitted that the service charge was not a government levy, it was for the benefit of restaurant employees, and was not a replacement for tips.

Court told the Restaurant association it has no problem with increasing the price of the food, and added that they were entitled to fix a rate for food, but cannot levy it separately.

Court added, “you cannot compel a person to pay service charged, you are the master of your price, but cannot then charge additional fee”.

In July, order of stay was passed in petitions filed by the National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations of India challenging the Central Consumer Protection Authority (CCPA)' guidelines.

The bench further stated that the customers have a choice not to go to a restaurant if they do not wish to pay the service charge.

Court further ordered the restaurants to ensure that service charge is not levied on takeaway orders and took note of the undertaking for it by the members of NRAI.

The guidelines by CCPA from July 4, 2022, stipulate that restaurants or hotels cannot automatically levy service charges on food bills. It further stipulates that the objective behind the provision is to prevent violation of consumer rights.

According to the guidelines, service charges cannot be levied under any other name either and customers cannot be forced to pay the same. Service charge is voluntary and may be paid at discretion by the customer and the same shall be informed to restaurant-goers, the guidelines stipulate.